The global markets have experienced what is technically called a pull-back. Every national stock market that I looked at (see below) fell by 5% or more in the past five trading days. Surprisingly, South Africa and Australia (given the news coverage) performed worse than China. Gold is rising and bonds are rising. Traders call this “risk off.” Investable money is flowing out of risky assets (shares) to safer assets. Whether or not this is an opportunity for long-term investors to buy quality stocks cheap depends on whether or not you believe earnings will recover and whether the discount is deep enough.

Interest Rates

yieldcurve-1The 30-day T-bill rate is 0.42%, the short government bond yield is 0.43% and the long government bond yield is 1.95%. The yield curve is flat in sthe short end, but otherwise normal.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher. Investors appear to prefer short-term, high quality bonds.
guageguage-1guage-2

Currency

Of the major currencies I looked at, only the Japan Yen is looking strong relative to the US dollar. The Canadian dollar continues to lose value compared to the US dollar.

Equities

In both the US and Canada, bonds are performing better than stocks. The short-term outlook for stocks is very bumpy.
US bonds vs. US stocks:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

  • Australia has changed -10.97% since last week’s close.
  • Austria has changed -6.07% since last week’s close.
  • Belgium has changed -5.11% since last week’s close.
  • Brazil has changed -7.69% since last week’s close.
  • Canada has changed -6.74% since last week’s close.
  • Chile has changed -5.89% since last week’s close.
  • China has changed -10.40% since last week’s close.
  • France has changed -6.20% since last week’s close.
  • Germany has changed -7.25% since last week’s close.
  • Hong Kong has changed -7.01% since last week’s close.
  • India has changed -6.11% since last week’s close.
  • Italy has changed -6.11% since last week’s close.
  • Japan has changed -5.61% since last week’s close.
  • Malaysia has changed -5.94% since last week’s close.
  • Mexico has changed -8.95% since last week’s close.
  • Netherlands has changed -6.08% since last week’s close.
  • New Zealand has changed -6.91% since last week’s close.
  • Norway has changed -8.25% since last week’s close.
  • Peru has changed -5.10% since last week’s close.
  • Philippines has changed -7.14% since last week’s close.
  • Poland has changed -8.68% since last week’s close.
  • Qatar has changed -6.85% since last week’s close.
  • Russia has changed -7.64% since last week’s close.
  • Saudi Arabia has changed -9.62% since last week’s close.
  • Singapore has changed -6.81% since last week’s close.
  • South Africa has changed -11.65% since last week’s close.
  • South Korea has changed -5.92% since last week’s close.
  • Spain has changed -6.30% since last week’s close.
  • Sweden has changed -7.09% since last week’s close.
  • Switzerland has changed -5.83% since last week’s close.
  • Taiwan has changed -8.22% since last week’s close.
  • Thailand has changed -5.58% since last week’s close.
  • Turkey has changed -6.35% since last week’s close.
  • UAE has changed -5.38% since last week’s close.
  • United Kingdom has changed -6.94% since last week’s close.
  • S&P 500 has changed -5.88% since last week’s close.

I didn’t find any national stock markets that were rising.

US Stocks

Yesterday’s closing price was 1,922.03. This is -4.50% lower than last week’s price (2,012.66), and -6.13% lower than last month’s price (2,047.62), and -4.61% lower than the price three months ago (2,014.89), and -7.44% lower than the price six months ago (2,076.62), and -7.97% lower than the price one year ago (2,088.48).

The average P/E ratio of the S&P 100 (equal weighted) is 19.60. This implies the market is fairly priced. This implies a forward capital return of 5.10% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Amazon.com, Inc. (AMZN)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Conocophillips Common Stock (chart)
  • Metlife, Inc. Common Stock (chart)
  • Exelon Corporation Common Stock (chart)

Canadian Stocks

Yesterday’s closing price was 12,445.50. This is -3.73% lower than last week’s price (12,927.20), and -3.69% lower than last month’s price (12,922.50), and -10.97% lower than the price three months ago (13,978.70), and -13.65% lower than the price six months ago (14,412.10), and -17.57% lower than the price one year ago (15,100.70). This is getting close to the definition of a bear market: a protracted 20% decline.

The average P/E ratio of the TSX60 (equal weighted) is 25.91. This implies the market is overvalued. There is likely a pessimistic outlook for earnings growth over the coming year. This implies a forward capital return of 3.86% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Husky Energy Inc. (chart)
  • Crescent Point Energy Corp. (chart)
  • Arc Resources Ltd. (chart)
  • Potash Corp Of Sask Inc (chart)
  • Encana Corp. (chart)
  • Teck Resources Limited (chart)
  • National Bank Of Canada (chart)
  • Power Corporation Of Canada (chart)
  • Bank Of Nova Scotia (chart)
  • Canadian Imperial Bank Of Comme (chart)
  • Bank Of Montreal (chart)

Other Assets

Canadian Universe Bond (XBB.to), GOLD TRUST (IGT.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Market Outlook, January 11, 2016

Leave a Reply

Your email address will not be published. Required fields are marked *